Reflections on a Mortgage Summit

Yesterday the Treasury and HUD hosted a "Conference on the Future of Mortgage Finance." It was an invite-only of Washington insiders. Somehow I found myself on the invite list, which was almost enough to make me believe that the Administration was finally serious about reforming Fannie and Freddie.

After getting over the nausea of being in a room full of people who I personally knew bore some responsibility for the mess we are in, I was then shocked that, compared to the rest of the room, Treasury Secretary Geithner came across as the radical. On one hand Geithner was very clear that the Administration was going to push for some sort of government guarantee, but also that the current structure, particularly Fannie and Freddie, were broken. He also went as far as admitting that Fannie and Freddie were a cause of the crisis.

Such statements only became radical in contrast to the rest of the room. Maybe about 80 percent of the attendees were blindly and violently attached to the status quo. Most offensive to those us who fight for free markets was that the industry representatives were the most vocal advocates for the status quo. To even suggest that lenders should bear the risk of loans they make was crazy to this group. It was a clear reminder that being pro-market and pro-business are generally two very different things. In fairness, not all lenders were busy plotting to find ways to profit while dumping their risk onto the taxpayer; some, such as Wells Fargo, were far more supportive of the private sector actually bearing the risk.

Most of those who were not industry insiders were housing and community advocates. While this group did seem a little less self-interested, they appear to have learned little about the risks of over-expanding homeownership. Repeatedly, access to homeownership, as if it could solve every social ill, was pushed as the primary goal. A few dissenters reminded us that rental is a viable option too, although they were mainly looking to continue/expand Fannie and Freddie's support of the multifamily rental market.

If the Administration was hoping that this group was going to come up with answers, then they must have been sorely disappointed. If Obama is serious about taking the taxpayer off the hook for risk in the mortgage market, then he is going to have to take on the special interests. My fear is that the event was just the beginning of how health care reform played out: cut a deal with the industry, pay off the Democratic base, and screw the taxpayer. Let's hope we actually see some change on this one.